2nd half trading announcement may 2008, page-2

From Intersuisse yesterday:

Company Reports in Today’s Issue Thursday, 15 May 2008

SUL Super Cheap Auto Accumulate

Market Overview

�� US stocks rose as relatively benign inflation data and a dip in oil prices helped
price-sensitive retailers,
�� The US consumer price index increased 0.2% in April, the Labour Department
said Wednesday. Excluding food and energy, it advanced 0.1%, less than the
0.2% increase forecast by economists,
�� Rising stocks, increasing supply and profit-taking ganged up to quash a rebound
in Treasuries on Wednesday that had stemmed from a tame April consumer
prices report.
�� Base metals on the London Metal exchange were lower Wednesday as market
participants said the major earthquake that hit China at the start of the week may
not affect metal production capacity as much as previously envisaged.
�� Australian wages excluding bonuses rose 0.9% in the first quarter of 2008 from
the fourth quarter 2007 and rose 4.1% from a year earlier,

Super Cheap Auto Moves into Bicycles
Super Cheap Auto plans to expand into the bicycle category via acquisition of
Goldcross Cycles, which has a high rollout potential. The acquisition valued
around $17.4m (up to $12.4m and assumption of $5m debt)
• The acquisition is subject to successful assignment of property leases,
Continuing with its strategy of acquiring store formats that could become
category kills, the acquisition is positive given the growth of bicycle sales
reached 1.43m in Australian for 2007 from 1.00m in 2003.
• SUL aims to open 50 category killer bike stores across metro Australia.
Goldcross Cycles is the largest wholly owned chain of bicycle retailers in the
country with a network of 11 stores in the greater Melbourne area.
In addition, SUL operates in Australia and New Zealand largely retailing
automotive parts and accessories but also hardware tools, gardening, camping
and other outdoor and boating equipment. Growth is coming chiefly from the new
BCF (Boating, Camping and Fishing) chain, although the Half Year results
ending December 2007 reported auto stores are trading well.
• SUL position is as a value retailer, beating any competitor’s price.
Re-investment of earnings in stores means a moderate dividend yield. Gearing is
moderate. A well run company in a difficult industry with no real barriers to entry.
Everyone is Riding a Bike these Days
• Cycling is the 4th most popular sport in Australia with participation by 6.3% of
the population aged 15 and over,
• In Australia, specialist bike stores service around 30% of the market. In the
US, specialist bike stores service around 70% of the market through the
emergence of national chains,
Words
We note that in the half year ending December 2007, the company had not
experienced a revenue slowdown despite declining consumer confidence, but
we believe the March to April revenue per store slowed as this was the general
trend across the retail sector;
The Half Year ending December 2007 results were;
• 1H08 sales grew 17.1% to $365.7m. • DPS 37.5% to 5.5c fully franked.
• EBITDA increased 32.6% to $29.3m, • Annualised ROE is now over 20%.
• EBIT 36.3% to $21.8m and • Operating cash flow was $26.8m.
• NPAT 37.8% to $12.5m. • EPS expanded 38% to 11.7c,
SUL stated that Goldcross Cycles is not expected to make a positive EBIT
contribution until FY10 to the group due to rapid expansion, but we view the
acquisition as positive given stores are expected to achieve turnover of $3.0m to
$3.5m after 3 years. We believe that this is a good time for SUL to prepare itself
for the forthcoming upswing in retail spending when consumer confidence
increases. We also believe that entering a high growth, highly fragmented,
market will be favourable to earnings as Goldcross Cycle stores open across
metropolitan areas.
• After falling heavily, SUL represents value given it is currently trading on
FY08e PE multiple of 12.9x and dividend yield of 4.0%.
We retain our Accumulate Recommendation